Exam 5: Cost Estimation

Clough Company is interested in establishing the relationship between utility costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Utility Month Machine Hours Costs January 3,250 \ 2,080 February 3,770 25,200 March 2,470 16,200 April 4,030 27,600 May 4,940 33,900 June 4,290 26,400 July 5,330 29,700 August 4,550 27,300 September 2,600 18,600 October 4,810 31,200 November 6,110 37,200 December 5,460 33,300 SUMMMARY OUTPUT Regression Statistics Multiple R 96.5\% R Square 93.2\% Adjusted R-Square 92.5\% Starndard Eror 1,710.21 Obserrations 12.00 Standard Lower Upper Coefficients Error t Stat P-value 95\% 95\% Intercept 4,472.26 2,019.39 2.21 0.051 -27.23 8971.74 Machine 5.329 0.455 11.70 3.69-07 4.314 6.343 Required: (a.) What is the equation for utility costs using the regression analysis? (b.) Does the variable "machine hours" have statistical significance? Explain. (c.) Prepare an estimate of utility costs for a month when 3,000 machine hours are worked.

Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Month Machine Hours Electricity Costs January 2,500 \ 18,400 February 2,900 21,000 March 1,900 13,500 April 3,100 23,000 May 3,800 28,250 June 3,300 22,000 July 4,100 24,750 August 3,500 22,750 September 2,000 15,500 October 3,700 26,000 November 4,700 31,000 December 4,200 27,750 Summary Output Regression Statistics Multiple R 0.965 R Squuare 0.932 0.925 Standard Error 1,425.18 Observations 12.00 Standard Lower Upper Coefficients Error t Stat P-value 95\% 95\% Intercept 3,726.88 1,682.82 2.21 0.05 (22.69) 7,476.45 Machine 5.77 0.49 11.7 0.00 4.67 6.87 Hours - The percent of the total variance that can be explained by the regression is:

The McGraw Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: (CMA adapted) Hours of Activity Maintenance Costs January 480 \ 4,200 February 320 3,000 March 400 3,600 April 300 2,820 May 500 4,350 June 310 2,960 July 320 3,030 August 520 4,470 September 490 4,260 October 470 4,050 November 350 3,300 December 340 3,160 Sum 4,800 \ 3,200 Average 400 3,600 A coefficient 684.65 B coefficient 7.2884 Standard error of the a coefficient 49.515 Standard error of the b coefficient 0.12126 Standard error of the estimate 34.469 0.99724 T-value a 13.827 T-value b 60.105 - What is the fixed cost per month using the high-low method to estimate the cost equation?

In the learning curve equation Y = aX^b, the "a" term represents:

Describe two advantages and two disadvantages of the high-low method of cost estimation.

The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below: Administrative Credit Month Costs Hours July \ 129,301 250 August 82,613 115 September 225,580 1,392 October 216,394 1,000 November 258,263 1,309 December 184,445 1,112 January 219,137 1,335 February 245,000 1,373 March 209,462 1,064 April 191,925 1,123 May 249,978 1,360 June 170,41\varepsilon 420 July 128,167 315 Total \ 2,510,687 12,172 Average \ 193,130 936 The controller's office has analyzed the data and has given you the results from the regression analysis: SUMMARY OUTPUT Regression Statistics Multiple R 0.9317157 R Square 0.868094147 Adjusted R Square 0.856102705 Standard Error 20,134.92395 Observations 13 ANOVA df S S M S F Significance F Repression 1 29,349,143,514 29,349,143,514 72.3928117 3.61909-06 Residual 11 4,459,566,787 405,415,162.4 Total 12 33,808,710,301 - If the controller uses regression analysis to estimate costs, the estimate of the fixed portion of administrative costs is:

The Missou Manufacturing Company recorded overhead costs of $14,182 at an activity level of 4,200 machine hours and $8,748 at 2,300 machine hours. What is the total estimated cost for 2,600 machine hours using the high-low method to estimate the cost equation?

Bachmann Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results: Units Produced Marginal Labor Time 1 80.00 2 68.00 - How much time will be needed to complete the 4th unit?

Because outliers are extreme data points, they can be included in the regression analysis and not significantly affect the results.

Southside Hospital is trying to get a better idea of the costs in its cardiac surgical unit. Unit cost data for supplies, labor, etc. have been collected for a three-year period. After analyzing the data using Excel, the following output was generated, based on 1,500 procedures. Intercept = $2,169, 000 Coefficient on procedures $972 Correlation coefficient = 0.448 R² = 0.189 The controller asks you for advice on whether to rely on this estimate. Based on the output, what would you say?

The following manufacturing costs were incurred by the Miracle Mile Company in 2019: Direct materials \ 225,000 Direct labor 350,000 Manufacturing overhead 470,000 These costs were incurred to produce 50,000 units of product. Variable manufacturing overhead was 70% of the direct materials cost. In 2020, the direct material and variable overhead costs per unit will increase by 12%, but the direct labor costs per unit are not expected to change. Fixed manufacturing costs are expected to increase by 8%. Required: (a.) Prepare a cost estimate for an activity level of 40,000 units of product in 2020. (b.) Determine the total product costs per unit for 2019 and 2020.

The cost accountants at the Barkley Company regressed total overhead costs and direct labor hours for the past 30-months and reported the following results: Slope \ 41.27 Intercept \ 596.36 Correlation Coefficient 0.934 What is the estimated overhead cost if 225 direct labor hours are expected to be used in the upcoming period? (rounded to the nearest whole dollar)

Given actual amounts of a semi-variable cost for various levels of output, the method that will always give the most reliable measure of the fixed and variable components is the:

One way to control the effects of a nonlinear relation between total costs and volume is to reduce the relevant range.

The account analysis method is more subjective than other cost estimation methods because it relies heavily on the personal judgment and experience of accountants.

The correlation coefficient is:

Which of the following statements regarding the learning phenomenon is true?

The engineering method of determining cost behavior is particularly useful for new activities or products.

One advantage of the engineering method is that it does not require data from prior periods to estimate cost behavior.

In the learning curve equation Y = aX^b, the X term represents: